Oil executives will talk about how the world needs more renewables and more oil. But there is tension between crude oil purveyors and renewable energy adherents.

This man is not happy. (AP)

Saudi Arabia Oil Minister Ali Naimi lobbed a verbal salvo in the crude vs. renewables scuffle. In a speech to oil executives in Houston, he warned that promoting the growth of renewable fuels too quickly could create a “nightmare scenario” – too little investment in oil, while renewables aren’t yet ready to pick up the slack.

His remarks seemed aimed at officials in Washington D.C. and particularly members of President Barack Obama’s administration. His speech comes at a time when the new Obama administration embarks on an ambitious path to steer the country’s energy policy away from fossil fuels. President Obama was to instate a national renewable electricity mandate and a carbon cap-and-trade system this year.

“We must be mindful that efforts to rapidly promote alternatives could have a ‘chilling effect’ on investment in the oil sector,” he said at the Cambridge Energy Research Associates oil conference, according to his prepared remarks. “A nightmare scenario would be created if alternative energy supplies fail to meet overly optimistic expectations, while traditional energy suppliers scale back investment.”

That echoes an argument made last summer by a Dutch think tank–basically, that oil-producing nations are just as concerned about “security of demand” as consumer countries are about “security of supply.”

Mr. Naimi’s warning against ramping up investments and expectations in renewable energy comes at a time when OPEC members are feeling the financial pain of low crude oil prices.
Mr. Naimi, the longtime oil minister for Saudi Arabia, is one of the most influential voices in the oil world. But he speaks as the Organization of Petroleum Exporting Countries has slashed output in an effort to cut supplies and keep prices from falling.

Still, Mr. Naimi acknowledged that the world was likely headed towards a transition away from fossil fuels. But he said it wasn’t clear which fuels or technologies would be able to gain the scale and economics needed to replace crude oil.

The cost of replacing the current “highly efficient and economical” energy infrastructure with alternatives would be “prohibitive” in the short term. “A prudent approach demands we recognize that the massive scale of the global energy system makes rapid change costly and impractical,” he said.

He also that he believed current prices were “unsustainable” and unsupported by market fundamentals. He blamed oil speculators for pushing up oil prices too high last year, but said they also should shoulder blame for “exaggerated price weakness.” He said financial markets were guilty of “group-think,” forgetting that the oil business is cyclical.

Members of OPEC and oil analysts have warned repeatedly in recent months that the low price of crude oil could lead to an underinvestment and crimp future oil supplies. An economic recovery and growth in oil demand could send prices shooting back up, warn analysts.

Comments (5 of 11)

OBVIOUSLY BP NEEDS HELP WITH THE OIL PROBLEM IN THE GULF. THE WHOLE SITUATION SEEMS TO BE BECOMING WORSE AND WORSE. I FEEL THAT SAUDIA ARBIA HAS MUCH MORE EXPERIENCE IN THIS KIND OF CRISIS.
I DON'T KNOW HOW TO BRING THE MIDDLE EAST AND THE USA AND BP TOGETHER IN ORDER TO TRY AND SOLVE THIS PROBLEM BUT SOMETHING HAS GOT TO BE DONE NOW BEFORE ITS TOO LATE.

11:04 am February 19, 2009

Daniel Burgos Zarazo wrote :

Great article. The transition to the sustainable environment economy must maintain adequate return for innovators and legacy system operators alike. No easy decissions here. QALY style system scorecarding could be a powerful tool but only meaningful with adequate global knowledge pooling and decission making processes.

11:03 am February 17, 2009

Ben from Europe wrote :

At first I thought I read an article in "the Onion"... ;-)

9:30 pm February 16, 2009

Corn Farmer wrote :

We've made it on $2.00 per bushel corn, what's wrong with OPEC making it on $5.00 per barrel oil?

5:25 pm February 12, 2009

Bob the Concerned wrote :

Maybe they should invest in oil production infrastructure instead of gold plated mercedes and harems

About Environmental Capital

Environmental Capital provides daily news and analysis of the shifting energy and environmental landscape. The Wall Street Journal’s Keith Johnson is the lead writer. Environmental Capital is led by Journal energy reporter Russell Gold, and includes contributions from other writers at the Journal, WSJ.com, and Dow Jones Newswires. Write us at environmentalcapital@wsj.com.